CME: Uncertainty remains for size of 2012 corn crop

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click image to zoom USDA will issue on October 11 its latest world supply and demand estimates, including updated forecasts of US grain and meat production for 2012 and 2013. Keep in mind that the CME now offers expanded CME Globex Trading hours. Also, on major USDA report days (the WASDE and Crop Production reports are in that category) the exchange will offer expanded floor trading hours for CBOT grain and oilseed futures and options. On Thursday, October 11, floor trading for grains and oilseeds will start at 7.20 am CT vs. the normal 9.30 am CT.

Corn and soybean futures have been drifting lower in recent weeks, in part due to harvest pressure but also following a deteriorating outlook for the global economy. And yet, there is plenty of uncertainty ahead both with regard to the size of the current corn crop and the ability of the market to orderly ration supplies until the next crop. On average, analysts expect corn yields to be 122.9 bu/acre, very close to the USDA September estimate (see table). There have been a number of contradictory reports following harvest (two thirds of the crop has been harvested at this point) and some analysts expect yields to actually gain from the September level. Soybean yields are broadly expected to be higher as rains in August and early September appear to have provided some tangible benefits. Then there is the issue of planted and harvested acres. There is some speculation that USDA may notably increase the number of acres planted following certified acreage data from the Farm Service Agency (FSA). But,  analysts polled ahead of the report indicated that they expect harvested acres to be around 86.1 million acres, about 1.3 million acres less than the September USDA estimate. This would lower the ratio of harvested / planted acres to 89.4%, compared to USDA’s 90.7% September number and 92.9% back in June. Higher abandonment rates this year are consistent with previous drought years. Is the current number still is too high? At this point, it appears to us that the analyst estimate is consistent with the normal deviation from trend (which has been increasing). Indeed, the ratio could be lower once the certified FSA numbers come in. On  average analysts, expect corn production to be about 100 million bushels or so below the USDA September estimate, largely due to the expected reduction in harvested acres.

The corn balance sheet will also have to account for smaller carryover stocks. The quarterly grain stocks survey pegged September 1 corn stocks at 988.4 million bushels, compared to the USDA estimate of 1.181 million bushels in early September. The smaller beginning stocks and the potential for lower production implies lower use numbers. The question is which marketing channels will be affected. Feed and residual use was forecast to be down 5.7% from the previous year and 13.4% from two years ago. We could see some minor reductions here (~ 50 mil bu or so). Ethanol and export numbers also will have to be lowered, leading to pipeline  minimum stocks of 648 mil bushels (5.8% stocks/use ratio)


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